Russia’s currency dropped again on Wednesday, eclipsing its descent during the Crimea crisis with a slide triggered by souring geopolitics and fresh US sanctions.
The rouble dropped 2 per cent in early European trade, with one dollar buying 64.5 units of the currency.
Wednesday’s fall follows violent swings over the past two days that have left the rouble down 9.9 per cent on the week. It has not faced such a heavy fall since 1999 — even worse than falls in 2014, a year that marked both the collapse in the oil price and Russia’s annexation of Crimea.
The US sanctions against Russian companies, businesspeople and government officials, announced last week, are expected to have only a limited economic impact, but investors are increasingly concerned about knock-on effects, according to Dmitry Polevoy, ING’s chief economist for Russia.
“The direct impact on the Russian economy through the sanctioned entities doesn’t look too biting. Yet, as was the case in 2014, the indirect effects are the primary focus,” he said. “These effects are impossible to quantify and properly analyse as they could have the potential to lead to a tail-risk scenario of uncharted waters of sanctions and likely retaliatory measures.”
For the moment, Mr Polevoy reckons the sharp drop in the rouble is “contained”. He said the market would keep a close eye on the 65 rouble to the dollar level.
Esther Maria Reichelt, analyst at Commerzbank, said the German bank views the rouble’s plunge as “an overshooting in the absence of clear impact estimates of the sanctions.”
But she adds: “‘overshooting’ does not mean that we know that the eventual fair-value has already been exceeded; we don’t know where that is!”
Policymakers have, thus far, appeared unconcerned over the volality. Elvira Nabiullina, the central bank governor, said on Tuesday that the currency’s free float would buffer external shocks, and that she did not expect to step in to stem the slide.
Maxim Oreshkin,economy minister, added on Tuesday that the government would look to help companies affected by the US sanctions.
The Russian equities market has also been on a rollercoaster ride. The benchmark Moex index plummeted 8.3 per cent on Monday, before rebounding 4 per cent in Tuesday in a volatile session. It rose 1 per cent in early trade on Wednesday.
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